(Bloomberg) -- Mark Zuckerberg, the first witness in the Federal Trade Commission’s trial to break up his social media empire, gave a rare window into how he makes business decisions: by fighting for survival, even when his company is ahead.
Over a marathon three days of testimony, the Meta Platforms Inc. co-founder and chief executive officer clearly articulated how the social media market has evolved rapidly over time — which, if the judge agrees, could make it more difficult for the FTC to prove Meta dominates it.
Zuckerberg was composed, but occasionally evasive, when challenged to explain past emails and other private messages indicating a concerted effort to muscle out competitors.
Those old messages and emails, gathered during the pre-trial discovery process, were more damning than his present-day testimony. The messages, often between Zuckerberg and other top Meta executives, painted a picture of an executive who was paranoid about his rivals and willing to buy competitors whenever possible.
The FTC is seeking to force Meta to sell off Instagram and WhatsApp, arguing that the two acquisitions have given Meta an illegal monopoly over parts of the social networking industry. Emails and documents presented at trial show that Meta, then called Facebook Inc., struggled to compete in the mobile app boom in the early 2010s, buying up successful competitors. The FTC said Meta bought the companies to eliminate direct competitive threats.
Multiple Competitors
Zuckerberg and Meta’s lawyers, meanwhile, argued that Meta faces a wide array of competitors that fight for user attention, including ByteDance Ltd.’s TikTok, Google’s YouTube, Apple Inc.’s iMessage and Microsoft Corp.’s LinkedIn. On Wednesday, Zuckerberg said that TikTok, in particular, posed a “highly urgent” competitive threat when it sprang up in 2018.
“We observed that our growth slowed down dramatically,” as TikTok gained popularity, Zuckerberg said Wednesday. “It was highly urgent, this has been a top priority for the company for several years.” Meta eventually rolled out a direct competitor, called Reels, that now drives a significant amount of video traffic for the company.
Zuckerberg was at times vague over his three days in court, and regularly disputed the FTC’s interpretations of his prior emails. As a leader, the way he communicated with staff was often blunt or harsh, and he spent time on the stand trying to add more nuance to what was written by his younger self. He occasionally clashed with the FTC’s lead lawyer, Daniel Matheson, who objected at one point that Zuckerberg wasn’t answering his questions.
What’s unclear is how much weight those emails will ultimately have as US District Judge James Boasberg, who is presiding over the case, makes his decision. Meta has argued that the intent behind the purchases doesn’t matter, only whether those deals lead to consumer harm, which it disputes.
Boasberg previously said the FTC will have a difficult time. Despite allowing the bulk of the case to proceed last November, Boasberg struck a skeptical tone about the FTC’s chances at trial. “Prevailing here, however, does not obscure the fact that the Commission faces hard questions about whether its claims can hold up in the crucible of trial,” the judge said. “Indeed, its positions at times strain this country’s creaking antitrust precedents to their limits.”
Boasberg also said in a ruling shortly before the trial that the FTC must prove Meta is harming competition in the present day.
Sheryl Sandberg, the company’s former chief operating officer, followed Zuckerberg on the witness stand, facing sharp questioning from FTC lawyer Susan Musser.
If the FTC prevails, a spinoff of Instagram and WhatsApp would undo years of integration between the apps, disrupt two of the most popular digital consumer products in the world and potentially erase hundreds of billions of dollars in Meta’s market value. It would also raise serious questions about how the government evaluates and approves deals because the government allowed the transactions to go through at the time.
‘Network Effects’
Part of the FTC’s case involves the technical concept of “network effects,” meaning that the more users a company like Meta has, the more likely they are to retain a dominant position, because people are unlikely to switch to a service used by few people.
Boasberg has remained largely silent during the questioning, but interjected during Zuckerberg’s testimony Wednesday to ask if network effects still really matter.
“How much does it matter if your friends are on a particular platform if you can send content out of that platform? Why does it matter if your friends are there?” the judge said.
Zuckerberg said it doesn’t. “These apps now serve primarily as discovery engines,” he said. “People can take that content to messaging engines.”
Bigger Company
Under questioning by Meta lawyer, Mark Hansen, Zuckerberg refuted the FTC’s argument that Meta bought Instagram to bury a competitor. Instagram would not likely have been able to grow to the extent it has had it remained independent, he said. “Instagram has been built out into a much more vibrant service” as a result of the deal, Zuckerberg said.
Taking a small online platform to a billion users and beyond is unlikely to happen without the backing of a larger company, he said. “Every company that has this level of scale is owned by a bigger company,” he said, citing TikTok and YouTube as examples.
Earlier in the trial, it was revealed that Snap Inc.’s Evan Spiegel turned down a $6 billion acquisition offer from Facebook in 2013 for its Snapchat app. Zuckerberg said that the app would have grown more rapidly had it joined his company.
Zuckerberg sought to walk back some statements that he made in previous internal communications. He acknowledged that he sent a 2013 email saying that Facebook blocked advertising for messaging apps WeChat, Kakao and Line, in which he wrote the apps were “trying to build social networks to replace us.” On the stand this week, however, he said “it’s hard for me to characterize what their intent was.”
Matheson also sought to show that Meta was aware of its antitrust risk years ago, including a possible breakup.
He displayed an email from 2018 in which Zuckerberg suggested that Meta should consider spinning off Instagram into a standalone company. “As calls to break up the big tech companies grow, there is a non-trivial chance that we will be forced to spin out Instagram and perhaps WhatsApp in the next 5-10 years anyway,” he wrote.
At one point, Zuckerberg was asked by Hansen to describe how he was evaluating the competitive threat posed by Instagram and others at the time of the deals. He referenced a quote from former Intel Corp. CEO Andy Grove: “Only the paranoid survive.”
(Updates with color on Zuckerberg testimony starting in the first paragraph)
